Risk assets fell against the US dollar on news that ship traffic through the Strait of Hormuz on Thursday stopped completely after Iran fired on merchant vessels and claimed it seized at least two ships, the first such incident in nearly eight weeks of the war with the US and Israel.

Investors reacted to this escalation immediately.

Demand for the US dollar, traditionally a safe-haven asset in times of geopolitical uncertainty, rose again. At the same time, risk assets such as the euro and the British pound showed noticeable declines.

The new incident in the Strait of Hormuz, which links the Persian Gulf with the Gulf of Oman and then the open seas, again became the number one problem for global trade and the economy. If last Friday Iran declared the strait fully open, then today's firing on merchant vessels and seizure of ships worsened prospects for a peaceful settlement by adding the immediate threat of a return to open warfare.

Two of the attacked vessels, MSC Francesca and Epaminondas, were subsequently boarded by Iranian forces, marking a new phase in Tehran's efforts to assert control over shipping through the Strait of Hormuz.

In recent days, shipowners with vessels in the Persian Gulf have been on edge, and Wednesday's incident became the second wave of attacks in less than a week. As noted above, over the past weekend Iranian forces abruptly interrupted the brief reopening of the strait by firing on passing vessels — a step Tehran later said came in response to the US decision to keep its naval blockade in place.

The currency market reacted quickly. The euro, the pound, and other risk assets returned to decline, as all of this points to a possible escalation of the conflict after US President Donald Trump yesterday extended the truce indefinitely, saying it is necessary to seek a compromise to sign a peace agreement.

As for the current technical picture for EUR/USD, buyers now need to think about taking the 1.1720 level. Only that will allow a target test of 1.1760. From there it is possible to climb to 1.1790, but doing so without support from major players will prove rather difficult. The most distant target will be the high at 1.1822. In the event of a decline, I expect significant buyer interest only around 1.1690. If no buyers appear there, it would be prudent to wait for a refresh of the low at 1.1650 or to open longs from 1.1620.

Regarding the current technical picture for GBP/USD, pound buyers need to take the nearest resistance at 1.3515. Only that will allow the pair to reach a target of 1.3550, above which a breakout will prove rather difficult. The most distant target stands at the 1.3595 area. In the event of a drop, bears will attempt to seize control of 1.3475. If they succeed, a range breakout will deal a serious blow to bulls and push GBP/USD down to 1.3445 with a prospect of reaching 1.3415.